Checklist for Commercial Contracts

The initial drafting of a commercial contract is of critical importance to the parties involved, so as to avoid future potential conflicts arising as a result of the parties not having fully considered the issues to be covered off.  When negotiating and drafting commercial contracts, the following are some of the more common issues which should be considered:

Parties

• Are the parties to the contract sufficiently identified?
• Have all the appropriate parties been included? A contract cannot confer rights or obligations on anyone who is not a party to it e.g. a Guarantor.

Performance Obligations

• Does the contract make clear who is to do what and how, when and where it is to be done?
• If you are supplying goods or services, is it within your power to comply with your obligations or do they need to be qualified in some way?
• Should the contract set a procedure to be followed in the event that it is necessary to vary the scope of work to be undertaken?

Remedies for Breach of Performance Obligations

• Should a failure to meet certain obligations be regarded as material and entitle the other party to terminate the contract?
• Should the contract state that time is of the essence, in which case failure to meet a deadline would allow the other party to terminate?
• Should a liquidated damages clause be included to cover delays? Note that such a clause must be a reasonable estimate of the losses which would be suffered if there is a delay.  If it is considered to be a penalty clause going beyond what is reasonable, it may not be enforceable.

Insurance

• If you are the recipient of goods or services, should the contract provide that the provider has certain insurance policies in place and at a specified level of cover?

Indemnities

• Might any potential claims by third parties arise in connection with the performance of the contract? e.g. infringement of intellectual property rights. If so, are appropriate indemnities included in the contract?

Limitations on Liability

• To what extent, if any, should the liability of the parties for breach of contract be limited or excluded?

Payment Terms

• Who is to pay what, when and by what method and in what currency? If the contract may be affected by currency fluctuation, is it clear which party bears the risk?
• Is the price stated to be inclusive or exclusive of VAT? Will any withholding taxes apply?
• Can prices be adjusted after the contract has been entered into? If so, in what manner?
• What happens if payment is not made? Will interest apply? Will goods supplied be subject to retention of title?  Should a third party guarantee be sought?

Dispute Resolution

• Should the contract set out a procedure for resolving disputes? Would it be appropriate to agree to arbitration to determine matters?

Termination

• When does the contract terminate? – on a specified date or on a party giving a certain period of notice?
• In what circumstances could a contract be terminated earlier?
• Does the contract need to specify what is to happen on termination? For example, will there be an obligation to complete work in progress? Will parties need to hand over documents or materials?

Execution

• Have the formalities of execution of the contract been complied with? These will depend on the identity of the parties and the nature of the contract.

 

Please contact Eimear Grealy, in the Corporate Department of BHSM on 01 440 8300 and egrealy@bhsm.ie for further information.

This article is for general information purposes. Legal advice must be obtained for individual circumstances. Whilst every effort has been made to ensure the accuracy of this article, no liability is accepted by the author for any inaccuracies.